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Project Finance in Power Sector

Aloke Sengupta GM, IDBI Ltd.
ASSOCHAM- Nov.30,2007

PART A: Power Sector Overview

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36.Overview Power.100 MW) Captive Power Plants (CPPs) would add another 12.A key driver for GDP growth Aggregate installed capacity about 1.000 MW ____________________________________________________________________________ 4 2 .55.000 MW Further addition of about 86. Further 13.000 MW Aggregate initiatives for capacity addition in 11th Plan would exceed 1.000 MW Projected addition during 11th Plan is likely to be over 68.500 MW whose benefit might spill over to the 12th Plan period These initiatives include certain Ultra Mega Power Projects (UMPP) of 4.000 MW) Small Hydel (1.500 MW during 11th Plan through non-conventional energy sources Wind Power (10.400 MW) Bio-Energy (2.000 MW each ____________________________________________________________________________ 3 Overview contd.

600 crore Approx. ‘000 crore) 25 106.31.2 59. Expected debt funding: Source Direct market borrowing Banks/ FIs PFC REC IIFCL Multilateral ECA / ECB / Syndicated Loan Expected credit (Rs.Power Sector Developments Enactment of Electricity Act 2003 Formation of National Power Grid and strengthening of national transmission network Development of regional and state grid Development of Merchant Power Plants Private sector participation in generation.10. transmission & distribution Ultra mega power projects (UMPP) ____________________________________________________________________________ 5 Power Sector .2 81.2 15 27.XI Plan Total fund requirement in 11th Plan is Rs.5 ____________________________________________________________________________ 6 3 .6 57.5 Others (to be arranged) 350. 70% to be met out of debt.

These issues include Fuel supply arrangements Power off-take arrangements Payment security mechanism Member of Core Committee of Govt. Capacity (MW) 22 6188 7113 2520 15821 IDBI’s sanction (Rs. for UMPPs ____________________________________________________________________________ 7 IDBI’s Sanctions Status Nos. Crore) 5414 4310 1274 10988 Fully Commissioned Under Implementation 11 Yet to achieve financial closure Total 4 37* *excluding projects below 20 MW ____________________________________________________________________________ 8 4 .IDBI’s Role in Power Sector Committed exposure of IDBI in Power sector is almost 50% of its commitment to entire infrastructure segment Active member in Inter Institutional Group (IIG) to resolve issues to achieve early financial closure in respect of identified IPPs.

Andhra Pradesh (USD 210 mn).IDBI’s Products & Services Project Finance Working Capital Finance (FB & NFB) Treasury Services Syndication & Advisory Services Syndication of Debt/Equity Carbon Credit Advisory IPO Monitoring Project Advisory ____________________________________________________________________________ 9 Funding by Multilateral Organizations World Bank (IBRD) Support towards State power reforms thru’ long-term lending instruments like Adaptable Program Loan (APL). Coal Sector Rehabilitation Project – supports liberalization of coal sector and development of new regulatory regime. IFC’s investment in India’s first private coal mine. and Uttar Pradesh (USD 150 mn) Rajasthan Power Restructuring Project Development of PGCIL’s infrastructure. Support to 412 MW hydro-power project in Himachal Pradesh (USD 400 mn) besides ongoing Renewable Resources Project. ____________________________________________________________________________ 10 5 . Haryana (USD 600mn).

Abolition of subsidies to farmers (case in MP).Funding by Multilateral Organizations Asian Development Bank (ADB) Leading promoter of energy privatization in Asia. (PPP agreements skewed in favour of private players). T&D utilities. Approved USD 350 mn for Madhya Pradesh towards financial restructuring and improvement in system operations India experience Increase in consumer tariffs. ADB’s role in power sector reforms: Corporatization of State generation. increase in debt burden on Govt. REL-PGCIL JV to undertake transmission projects NTPC-SAIL Power Company Pvt Ltd. (50:50 JV) NTPC Tamil Nadu Energy Company Ltd Torrent Power Grid Ltd (JV between Torrent Power and PGCIL) – setting up transmission lines in Gujarat ____________________________________________________________________________ 12 6 . ____________________________________________________________________________ 11 PPP/ Joint Ventures No major initiatives in the area of Power Generation 1200 km Tala Power Transmission System The project is a 49:51 JV between Tata Power and Bhutan's Power Grid Corporation Limited (PGCIL) and also received assistance from ADB. Extended USD 250 mn for establishment of national grid (2000). USD 350 mn support for power sector reforms in Gujarat (2000).

14 7 .Cheyyur Fuel Source Imported Pit head Pit head Imported Imported Imported Pit head Imported SPV Coastal Gujarat Power Ltd Sasan Power Ltd Akaltara Power Ltd Coastal Karnataka Power Ltd Coastal Maharashtra Power Ltd Coastal Andhra Power Ltd Jharkhand Integrated Power Ltd Coastal Tamil Nadu Power Ltd Orissa – Sundergarh Pit head Not available ____________________________________________________________________________ Dist.Tadri Maharshtra – Girye (Sindhudurg) Andhra Pradesh Krishnapatnam Jharkhand – Nr Talaiya dam Tamil Nadu . 16000 cr Projects will be awarded on Build.Ultra Mega Power Projects MoP. Own and Operate (BOO) basis Power Finance Corporation (PFC) would act as nodal agency ____________________________________________________________________________ 13 Proposed UMPPs Location Gujarat .Akaltara Karnataka . CEA and Power Finance Corporation are working together on developing ultra mega power projects under tariff based competitive bidding route.Mundra Madhya Pradesh .Sasan Chattisgarh . Envisaged generation from each project : 4000 MW Estimated investment per project ~ Rs.

33 Status of other UMPPs Location Jharkhand Orissa Tamil Nadu Status Site selection and coal block allocation completed. Reliance Power Ltd. Gujarat Sasan. Tariff Rs. 1. Coal block allotment/ linkage Obtain Environmental/ forest clearance Monitoring progress of shell companies to meet envisaged timelines.19 Rs.Developer bidding process in progress.Progress 3 UMPPs awarded till date Location Mundra. ____________________________________________________________________________ 15 UMPPs . entering into PPAs and ensure proper payment security mechanism with distribution utilities etc. 2.Issues Central & State support vital for tackling R&R issues. 2. Site identification underway Preliminary stages: Only site identified 16 ____________________________________________________________________________ 8 . MP Krishnapatnam. Reliance Power Ltd.UMPPs .26 Rs. AP Developer Tata Power Ltd.

Bidding process to commence. Transmission and distribution Transmission capacity to be strengthened Ensuring a suitable assured payment mechanism to improve bankability of projects ____________________________________________________________________________ 18 9 . Risk mitigation Long term contracts for fuel supply and power purchase.Progress (contd. ____________________________________________________________________________ 17 Viability issues Keep capital and operating cost the least Rationalization of duties and taxes to reduce capital cost.UMPPs .) Location Maharashtra Karnataka Status Site identification underway Suitable location yet to be identified Chhattisgarh Site identified.

20 Delay/ Insurances PPA/ MER. Advisor Government Rating Agency Concession/ Site Lease Suppliers FSA Independent Experts Lessors Lawyers Lease Performance Bonds Banks Turnkey contract Performance Warranties Equipment Vendors Sponsors Special Purpose Vehicle Off taker Insurers Agent/ Trustee Evacuation Exims/MLA Co-financing/ PRI Arranger/ Lead Funder Swap Counterparties O&M Contract O&M Co.PART B: Project Finance Aspects Project Finance Participants Fin. ____________________________________________________________________________ 10 . SALE Offshore Proceeds Account Security Project Loan Agreement LDs Construction Co.

Risk Categories Within Company’s Control Outside Company’s Control Within Lender’s Control ____________________________________________________________________________ 21 Within Company’s Control Operating Risk Technical Cost Management Participant Risk Engineering Risk or Design Risk Completion Risk ____________________________________________________________________________ 22 11 .

Outside Company’s Control Supply Risk Market Risk Infrastructure Risk Environmental Risk Political Risk Force Majeure Risk Temporary Permanent Foreign Exchange Risk ____________________________________________________________________________ 23 Within Lender’s Control Syndication Risk Funding Risk or Interest Risk Legal Risk (?) ____________________________________________________________________________ 24 12 .

Risk Absorption Matrix Risk Category Absorbed by Financier Supply Operating Technical Cost Management Infrastructure Environmental Market Political Force Majeure Foreign Exchange Funding Participant Engineering Completion Syndication Legal Financier Financier Financier Financier. Contract Insurers Constructor Co. Hedging JVA./Qty. Company Financier Financier Financier Company Bank (Underwritten) Bank If Risky by Reserve warranty. (Best efforts) Insurers 25 ____________________________________________________________________________ Project Cashflows Foreign Exchange Operating: Cost Supply/Traffic Operating: Management Force Majeure Environmental Infrastructure Engineering Operating: Technical Participant Market Political Funding 16 Risks Output No. Government Insurers. Sales contract Financier Financier Financier. Alternative supply Company Company Contract Consumer Company Buyback Insurers. Consumer Financier Financier. times: Price Completion Syndication equals: Revenue Less: Cash costs Royalties Overheads equals: Net Operating Cashflow plus: Project loan Equity equals: Total sources less: Capex Increase in WC Interest (I) Income Tax Principal equals: Total uses Total Sources-Total Uses = Net Net Cashflow (NNCF) NNCF + I + P = Available Cashflow (ACF) ____________________________________________________________________________ Legal 26 13 . Company Hedging Swaps.

site. licenses or tenements Assignments of sales contracts Priority/sub-ordination of Joint Venture Agreement elements Assignments of management.Security Structure Mortgage or first charge Rights to concession. technology or operating agreements Foreign paying agency agreements Assignment of insurance contracts 27 ____________________________________________________________________________ THANK YOU ____________________________________________________________________________ 28 14 . leases.